Origination

Even though mortgage rates continue to flirt with all-time lows, homebuilding executives feel awful. A new report from the National Association of Home Builders says executives in the sector are losing confidence in housing now that two federal tax credits have expired. NAHB said its housing market index fell to 17 in June, sinking five points after two straight months of increases. It was the lowest reading since March. "The homebuyer tax credit did its job in stoking spring sales and we expected a temporary pullback in the builders' outlook after the credit expired at the end of April," said NAHB chairman Bob Jones, a homebuilder from Bloomfield Hills, Mich. "However, the reduction in consumer activity may have been more dramatic than some builders had anticipated, which resulted in their lower confidence levels." Builders were more optimistic earlier in the year when consumers could take advantage of tax credits of up to $8,000. The incentives expired April 30 but buyers with signed contracts have until June 30 to close. Legislation has been introduced in the Senate to extend the closing deadline into September.

Many proposed refinancings and purchase loans have been scuttled because the appraiser could not find enough comparable sales of similar homes. Part of the problem is that lenders have narrowed their definition of an acceptable comp in the past year as part of an overall stiffening of standards. Many appraisers have failed to find the requisite two comps within the prior three months, or even three comps within six months, because there have been so few sales in a given area. This could create a self-fulfilling cycle, where fewer sales lead to fewer comps, which in turn lead to still fewer sales. At the same time, as distressed sales make up a greater portion of the real estate market, lenders also fear those sales will become the only comps, resulting in lower home values and hence smaller loans.

Language in the "base text" document of the regulatory reform bill could allow residential borrowers to sue their lender—without a statute of limitations—if the mortgage banker violates the anti-steering provisions of the law. According to an analysis of the base text conducted by K&L Gates, "in the case of judicial or nonjudicial foreclosure or any other action to collect on a loan, it appears that a consumer has a perpetual federal right to assert such a violation by a creditor as a matter of defense by recoupment or set off in an amount equal to the monetary damages that could be asserted against the original creditor." The base text is an amalgamation of the House and Senate versions of the bill. The law firm notes that several provisions from the House bill pertaining to residential mortgage lending that were not in the Senate Bill are included in the initial base document. The anti-steering language is designed to prevent lenders from pushing borrowers into certain loans—regardless of their ability to repay—because the loan officer might receive higher compensation for delivering such a loan. The law firm is telling clients, "There is a lot to be digested in the base document, but it is important to stress that it is the starting point for negotiations among the conferees."

Although there are signs of life in the wholesale sector, originations through the channel hit an all-time low in the first quarter, according to figures compiled by National Mortgage News. Residential loans facilitated through table funding accounted for just 12.8% of the $329 billion in originations in 1Q, down significantly from a peak of 28.2% three years ago. (The previous all-time low was 13%, established in the third quarter of last year.) The decline comes as some lenders—GMAC Mortgage, Bank of Internet and others—are showing a new willingness to use loan brokers or approach salesmen they used in the past. As wholesale declines as a channel, retail and correspondent production are gaining. In the first quarter retail lenders accounted for 47.5% of all loans produced with correspondent capturing the balance, 39.7%. (For the full story see the weekly edition of NMN.)

In a deal being brokered through Perrin & Associates, an unidentified bank is pledging $1.8 billion in new commitments to nonbank lenders this year. Michele Perrin, president of the firm that bears her name, said she could not identify the lender at this time. She noted that she will be screening the applications to borrow. "The bank will allow both retail and wholesale lending," she said in an interview with National Mortgage News. "But you need a minimum net worth of $1 million and must be in the business for at least three years." One added benefit is that the bank will extend credit on a 20-to-1 leverage basis. Liquidity in the warehouse sector has increased dramatically the past six months but one of the largest players in the field, the former warehouse lending division of National City, is in the process of winding down all of its lines.

CoreLogic has launched Partner InfoNet, a program for sharing revenue with multiple listing service organizations. Through the effort, an MLS licenses its listing data for use in a variety of new risk management products for mortgage lenders, servicers and the capital markets. Until now, MLS organizations have lacked a safe and easy way to generate additional value for their members by applying their listing data outside of the real estate transaction. At the same time, lenders have lacked access to critical listing information that would help make better and faster lending decisions. The Partner InfoNet addresses both these issues by combining CoreLogic MarketLinx licensed MLS data with CoreLogic property data assets to create enhanced risk management products for lenders. CoreLogic provides data and analytics solutions to the mortgage community.

Freddie Mac and Fannie Mae have selected Veros Real Estate Solutions as a technology vendor for their Uniform Collateral Data Portal. The portal will support electronic appraisal data delivery to the government-sponsored enterprises as part of the Uniform Mortgage Data Program, launched this spring. The GSEs have said that to enhance their collateral risk management, they will require seller-servicers to submit full appraisal reports in electronic data format prior to loan delivery to either Fannie Mae or Freddie Mac, effective April 2011. UCDP will serve as a centralized portal for these submissions.

FIS will acquire Compliance Coach Inc., a vendor that provides risk assessment software, e-learning and tools tied to lending compliance matters. The transaction is expected to close within the next 30 days. Terms of the deal were not announced. This acquisition is a strategic move by FIS to enhance its overall compliance strategy. FIS will assume ownership of Compliance Coach's flagship products including Regulatory University, Compliance Risk Indicator and Compliance Pal. These solutions currently support approximately 1,500 clients, including seven of the top 10 depositories within the financial services industry.

The National Credit Union Administration has issued a supervisory order directing Sperry Associates Federal Credit Union, Garden City, N.Y.—one of the biggest victims in the $140 million U.S. Mortgage/CU National Mortgage scam and a major investor in loan participation pools—to boost its capital. The Letter of Understanding and Agreement signed with NCUA may reverberate even further because it will require the $360 million asset CU to charge off $1.3 million of nonperforming participations it had from loans originated by the failed Cal State 9 CU, and another $1.9 million of participations in troubled South Florida loans. The supervisory order could spell trouble for hundreds of other CUs that hold participations in troubled real estate loans around the nation. Sperry Associates, which is fighting Fannie Mae for the return of $9.5 million of its mortgages fraudulently sold to the GSE by CU National, was cited for declining capital, participation losses, potential unrecognized investment losses and inadequate testing of high-risk areas. In return for agreeing to the Letter of Understanding and Agreement, NCUA will refrain from issuing an administrative order against the credit union.

Securitization market participants appear to be unified on eight issues related to risk retention proposals and split on two, according to a draft report by a group that represents both the "buy" and "sell" side of trades. The group is split on a portion of the legislative proposal which makes it possible in the commercial mortgage market to have a third-party purchaser retain the first-loss position if that purchaser specifically negotiates for such a position and performs due diligence on the pool. According to the American Securitization Forum's June 11 draft report on its membership's response to financial regulatory reform proposals by the House and Senate, certain of the group's members "believe this alternative form of retention should be available for other asset classes." However, it said, other members "believe retention of risk by a third-party purchaser is not retention at all, because it allows the issuer to sell the risk which does not align incentives or result in prudent securitization practices." The group also remains split on whether "qualified" securitized mortgages underwritten to "prime" credit standards should get an exemption. Some members believe allowing a "qualified" mortgage exemption would ensure "incentives are aligned between originators and investors." Others said they are concerned that "while a 'qualified mortgage' would require some minimum in quality, it would not require an issuer to have ongoing 'skin in the game' with respect to the securitization." While the membership is split on the aforementioned two issues, it is unified in pushing for proposals that allow for "adequate representations and warranties and enforcement mechanisms" to be used as an alternative for risk retention.